If I reinvest my dividends into my mutual fund shares, are they still taxable? Are dividend reinvestment plans taxable?

ANSWER

The BIDaWIZ Team's Answer:

Is the investment in a mutual fund held in a tax-advantaged account such as an IRA? If not, then interest and dividends that are reinvested into the mutual fund are still subject to taxes. This is referenced in IRC Section 1012(d)(4)(A). This would be added to your adjusted gross income. However, please note that the reinvested interest and dividends add to your cost basis, which will lower your capital gains tax when you eventually sell those shares.